Markets

Yellen Fed & Monetary Policy: “Running it Hot”

September 24, 2016
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Yellen Fed & Monetary Policy: “Running it Hot”

The September Fed meeting issued few surprises; fed funds were not hiked, as was telegraphed by the Brainard speech. While the Fed maintained interest rates, in the press conference, Yellen once again, found a way to interject incremental dovishness, driving interest rates lower, and asset prices up. The playbook of the Yellen Fed for the past 3-years continues. The new focus of the Fed revolves around finally acknowledging that the Philips Curve is a rubbish inflation model, and that more slack exists in the labor market, and the economy, than previously believed, hindering an acceleration in inflation pressures. Cynics will observe that this new found slack wasn’t focused on by hawkish Fed Governors, up until September 10th, when talk of two hikes this year were still be floated. The...

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Big in Japan; Can the Fed trump the BOJ?

September 21, 2016
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Big in Japan; Can the Fed trump the BOJ?

VIX back to the 15 range ahead of a consequential Fed meeting, deep into the economic cycle. Volatility crush continues into actual central bank announcements. Zombie US markets can’t go down but can’t rally either. After recent, underwhelming ECB announcements, markets sense more to come from the Fed, yet a gasping sense reigns omnipresent. What, actually, can the Fed do? After a litany of hawkish babble, commentary, from Fed governors this month, indicating the potential for two rate hikes. Can the expectation fall all the way to zero hikes in 2016? Just on an employment report that missed by 20,000 jobs? It seems that getting expectations down to no hikes in 2016 is the only way to deliver a “dovish surprise”. In this context, market action will be difficult to predict at 2:00...

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Inmates Running the Asylum; Fed Policy 8-years into Recovery

September 16, 2016
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Inmates Running the Asylum; Fed Policy 8-years into Recovery

Last week, a Fed Governor, made comments hitting Bloomberg, that the Fed was not a handmaiden to the markets. The comments, not part of a major speech, and difficult to find on Google, were striking, and provocative, conjuring memories of a period when this would never need to be said. Today’s baffling Fed communication strategy involves speeches of voting members, non-voting members, incorporates guidance, including some guidance that makes its way to the cover of the WSJ through Jon Hilsenrath, and includes a full blown black-out period where no comments are allowed at all. What happened to the time when there was a Fed meeting, and sometimes unexpected things happened? Post-financial crisis, markets are viewed as fragile by policy makers. The extent to which markets are actually fragile is debatable,...

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Volatility Suppression Challenged

September 12, 2016
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Volatility Suppression Challenged

Since the BREXIT rebound/rip, it’s been an exceptionally stable summer. Few predicted that the unexpected BREXIT vote, would be an unequivocal positive to markets. The tell, quite clear after the fact, was the global rate plunge, and the US 10-year yield sinking to the 1.35% range, around the 4th of July. The perfect combination arose to send markets to all-time highs during the summer, a scary event (BREXIT) that lowered global rates, took the Fed off the table, and led to stimulus as far as the eye could see in Europe/elsewhere, all while not really impacting the US economy. As long as “lower-for-longer ” (interest rates), a BREXIT residual, remained in-play, volatility suppression reigned, and equities could grind higher. While the dynamic persisted all summer, it came undone the...

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On Brexit

June 28, 2016
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On Brexit

What a tumultuous 5 days. The lurching feeling is all the more acute after a period of one-way markets (up) and declining volatility. With polls shifting towards “Remain” last week, the prospect of all-time highs in the S&P 500 held an aura of inevitability. The unexpected Brexit vote, by a solid 4 point margin, tanked stocks for two consecutive sessions, eliminated Fed rate hike expectations for 2016, and catapulted gold. Monday’s continuation of trend points to Brexit being something larger than a one-off event catching market participants all on one side of a trade. The shock to the construct of the EU will impact financial markets through the end of the current cycle, which is already in late stages (7-years old). Perhaps, Brexit will be a tipping point, or...

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Valuing the Yellen Put

April 7, 2016
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Valuing the Yellen Put

The Yellen Put, follows a line of Federal Reserve inspired put options, valuable to market participants of specific Fed Chair eras. The rationale behind the Fed Chair put is simple; with the Federal Reserve so vigilant to support any downtick in the economy and/or markets with interest rate cuts (Greenspan), quantitative easing (Bernanke), and ZIRF (Zero Interest Rates Forever – Yellen) investors receive downside protection from the Fed. Actually paying for downside protection vis-a-vis real put options takes on a ludicrous feel; markets don’t go down much, and if they do, they never stay down. Duh. That markets are increasingly policy driven is a reality of the current investment/economic cycle. 2016 investors are learning (through force) just how valuable the Yellen Put is. Janet Yellen is the most dovish...

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Wall Street vs. Main Street Investment Attributes

February 29, 2016
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Wall Street vs. Main Street Investment Attributes

Market leadership is constantly changing as sub-sectors come in and out of favor and particular investment attributes ebb and flow in popularity. One new theme in 2016 is the resurgence of “Main Street” type investments and overall investment exposures relative to “Wall Street” investment exposures. More simply put, mass market exposures are outperforming higher-end, upper income/luxury exposures. Within the consumer space noteworthy moves and investment shifts are underway as some of 2015’s high fliers are dramatically tumbling back down to earth. A stark example is Restoration Hardware. The stock is cut in half since the start of the year and down some 60 points, to $40, from prices above $100 just last fall. The culprit for RH is a dramatic sales and earnings miss in a promotional environment for furniture....

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China Slowdown Will Plague Markets For Years

January 31, 2016
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China Slowdown Will Plague Markets For Years

What a start to the year. CJF’s contrarian prediction of 1,860 on the S&P came to be on January 20th. Subsequently, the market rallied strongly on the hint of more quantitative easing out of the ECB, and the adoption of negative interest rates by the Bank of Japan. Any doubts that 2016 will be a volatile, and difficult year, should now be erased. After a tumultuous January for investing, a period when seasonality and investment inflows are supposed to support markets, CJF is stepping back to assess big picture dynamics for the global economy and the overall investment environment. At risk of being overly obvious: Something is not quite right with the global economy In the seventh year of recovery since the financial crisis, Brazil is in recession, Russia...

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2016

January 7, 2016
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2016

“I would say happy new year but it’s not happy; it’s exactly the same as last year except colder.” -Robert Clark I find the quote fitting for financial markets, and CJF prognostications, after a very tough 2015, and an inauspicious start to 2016, with a week-one tailspin around the globe. The setup for 2016 isn’t pretty, and investors should brace for a potential sharp pullback in markets, and heightened volatility through the year. Decisive 2016 themes: 1) valuation (high) 2) deflation (pressures global earnings) 3) liquidity (tug-a-war between Fed and “other”) The S&P 500 valuation swelled from 12x forward earnings in 2011, to 17x in 2015. While the market multiple is now somewhat off its high, it remains in the 16x vicinity. High valuation raises the bar for economic/earnings...

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Policy Driven Markets are Treacherous

December 10, 2015
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Policy Driven Markets are Treacherous

Volatility in the stock market is rising, intraday swings more violent, and high-to-low ranges increasing. The lurching action of the market is not driven by fundamentals, it’s difficult to profit from, and disconcerting. There isn’t a single item to pinpoint with respect to market angst, rather, a combination of factors, leading to manic sentiment changes. The sweeping issue of late-2015 is the extent to which global financial markets remain policy driven. During the financial crisis and subsequent few years, the degree of governmental and regulatory involvement in the economy and markets was prudent. Letting a crisis flare served no one. However, it’s worrisome that markets are still sooooo policy dependent 7-years into a recovery. One shudders to think what will happen if the economy really slows. China markets sit...

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Black Friday Retail Dud; Online Share Shift Accelerates

November 28, 2015
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Black Friday Retail Dud; Online Share Shift Accelerates

Bah humbug. Black Friday jumped the shark sometime around the turn of the century. Nonetheless, a disproportionate amount of retail and media focus continue to emphasize Black Friday’s importance as an event. While declining over several years, this year got markedly worse, to the point where media reports were forced to highlight the “normality” of shopping on Black Friday and the notable empty parking lots. This year, the Grinch brought store based retail sales over to online. Sources of information are disjointed but echo the same themes enough to draw some early conclusions: WSJ: “Early Sales Thin Black Friday Rush “Driving up to a nearly empty parking lot at a Wal-Mart in Houston Friday morning, Dora Rodriquez, 39, stopped her silver hatchback in surprise and called out her window...

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Qui n’avance pas, recule

November 16, 2015
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Qui n’avance pas, recule

We all eat at restaurants, go to stadiums, and walk down the street. The tragically successful terrorist attacks in Paris highlight the vulnerability of the human condition at any instant. While this has always been the case, and will continue to be so, civilization, and human progress, over past centuries and decades, reduces the chance of random death from a vulgar, inhumane cause. Radical Islamic terrorism is so deplorable because the aim is to destroy, to undo, to move backwards in time, and to return to a harsher world. The impossibility of the ultimate success of the radical Islamic movement is matched with the fervor of the very small percentage of the world population that supports this movement. To create the scale necessary to carry out such large scale...

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